ASIC has today released updated guidance for Australian financial services (AFS) licensees that hold client money for trading in over-the-counter (OTC) derivatives.
The guidance coincides with the start of ASIC’s Client Money Reporting Rules 2017 (client money reporting rules) and other client money reforms on 4 April 2018 enacted under the Treasury Laws Amendment (2016 Measures No. 1) Act 2017 and the Corporations Amendment (Client Money) Regulations 2017.
ASIC Regulatory Guide 212 Client money relating to dealing in OTC derivatives (RG 212) has been updated to reflect the changes to the law as a result of these reforms.
The changes mean that the circumstances in which an AFS licensee may use ‘derivative retail client money’, within the meaning of the Corporations Act, have been significantly restricted. In particular, AFS licensees can no longer withdraw derivative retail client money from the client money account and use it for a wide range of purposes, including as the licensee’s own working capital.
The reforms also impose new record-keeping, reconciliation and reporting requirements on AFS licensees that hold derivative retail client money (unless the client money relates to a derivative that is traded on a fully licensed domestic market, such as ASX 24).
ASIC Commissioner Cathie Armour said, ‘The amendments to the client money regime enacted by Parliament have strengthened the protection of derivative retail client money and will help to increase investor confidence in the Australian financial system.
‘ASIC’s client money reporting rules will also ensure greater transparency in relation to an AFS licensee’s receipt and use of derivative retail client money and will ensure any discrepancies in an AFS licensee’s client money account are notified to ASIC in a timely manner and enable ASIC to take appropriate action.
‘ASIC has engaged with industry and there has been a sufficient transition period to ensure that AFS licensees that hold derivative retail client money are aware of the new regime and understand the obligations it imposes. From 4 April 2018, we expect licensees to know and comply with the new client money regime’, Ms Armour said.
See also INFO 262